David Raab Article Archive

It’s been fun writing about surveillance systems these past two months, but I’m beginning to think my phone is tapped. So maybe it’s time for a less sensitive topic.

Let’s try Application Service Providers (ASPs). They were a hot item back in the bubble days, when any new idea could get funded by being, well, new. The idea in this case was to be a vendor that ran software for many companies, rather than selling the software for each company to run for itself. Apart from making good use of the Internet–itself a magic word in those days–this promised lower cost because the ASP would spread the expense of specialized staff and sophisticated systems across many clients. Deployment would be completed in days or weeks, not months or years. And perhaps most important–although the claim had to stated tactfully–an ASP removed the risk of implementation failure due to errors by the in-house IT department.

The concept always raised some questions. Would firms be willing to place essential data and mission-critical operations in the hands of an external vendor? Would they accept the limits on customization necessary to allow one system to serve many organizations? Would companies lose the ability to integrate operations if different applications ran independently at separate ASPs? Once the bubble ended, a new question was added: could ASPs actually generate enough revenue to stay in business?

Now that the dust kicked up by the tech boom has now settled, we can see that ASPs have survived, at least in selected niches. One of those happens to be sales and marketing systems. With the benefit of hindsight, it’s easy to see why:

– Funding. ASP clients pay per user per month, instead of making a large initial investment for licenses and implementation. Sales and marketing departments can often pay out of their own operational budgets, rather than requesting capital appropriations in a process where their needs typically have low priority.

– IT Support. ASP systems require very little technical effort by the client organization. This appeals to most sales and marketing departments, which have few internal technical resources and often get little support from corporate IT. (Actually, relations between marketing and IT groups have noticeably improved in recent years, probably because they’ve had more reason to work with each other. But sales and marketing systems are still generally a low priority for most IT operations.)

– Implementation. Salespeople are notoriously focused on short term goals–you would be too, if your compensation was based on a quarterly sales quota. This makes them especially interested in the quick implementation and minimal training requirements of an ASP solution. Immediate results are also important when you’re paying out of an operational budget–meaning costs are charged against current period profits–rather than a capital budget that spreads the costs over time.

– Risk. ASP vendors make it easy to start with a handful of users and often allow month-to-month contracts. So it’s easy to cancel a project if it fails or expand it if it succeeds. This is particularly appealing to sales and marketing groups who may not be certain of their exact requirements or whether the system will yield any true benefits.

– Distributed Access. Sales and marketing systems are often used at many locations, including field offices and third parties such as dealers and distributors. ASP systems make this easy by providing access to anyone with a browser, Internet connection, and appropriate security codes. This brings us back to identify verification and surveillance systems. But we won’t talk about that just now.

– Customization. ASP systems allow relatively superficial customization, such as changing screen layouts and adding user-defined fields to existing tables. But all clients must use the same basic software for the ASP to operate efficiently. Many sales and marketing groups are fairly unstructured, so it’s easy for them to adopt whatever process the ASP system requires. In addition, sales and marketing processes are fairly similar from company to company.

– Integration. Data at an ASP is not easily accessible to company systems. Most ASPs offer some integration capabilities, ranging from batch data exports to real time integration via APIs or XML. But all these involve a fair amount of technical effort–exactly what ASP customers are hoping to avoid. Sales and marketing systems are generally less integrated with company operations than other systems like manufacturing or finance. So integration challenges are less likely to present a major stumbling block.

– Security. Companies are often reluctant to let critical data reside externally–even though the external vendor’s security may in fact be better than a company’s own. But sales and marketing data is often considered less sensitive than other operational information, at least by the corporate IT groups who are the most likely to raise this objection. So the decision is left to the users themselves, who are more likely than IT to let system benefits outweigh security risks.

As many of these items suggest, ASPs are most appealing where sales and marketing requirements are relatively simple. This is most likely to apply to small and mid-size firms, which indeed form the heart of the ASP market. Probably the most successful ASP segment is sales force automation, where vendors include Salesforce.com, Upshot and SalesNet. The specific attraction of these products is improved ability to gather and consolidate sales forecasts–a critical problem for many sales managers. But the ASP model has survived in customer support (WhitePajama), campaign management (Zoomio), sales forecasting (DirectLogic), marketing administration (Marketing Central, Kickfire), Web site analysis (Web Side Story, Coremetrics, Keylime Software) and even specialized functions like Web-based surveys (WiseUncle). Few if any of these firms are yet profitable, so their long term viability is not assured. But so long as they last, ASPs provide an intriguing and attractive alternative to conventional software for a number of sales and marketing solutions.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.